Kazaa Assets Frozen in Australia

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Kazaa Assets Frozen in Australia

MELBOURNE, Australia – The assets of Sharman Networks, the maker of the Kazaa peer-to-peer software, have been frozen pending the outcome of a lawsuit brought against the software-maker by the recording industry.

The personal assets of Sharman's directors, including their homes, have also been frozen following the latest legal push. Australia's Federal Court heard the music industry's motion in Sydney on Friday. The assets of Altnet, which licenses technology to Sharman and is a co-respondent in the action brought against Sharman, have also been affected.

The maneuvering comes just days after Altnet said it would set up a fund designed to give independent record labels a share of Kazaa's advertising revenue. Lee Jaffe, Altnet's president, told Wired News the asset freeze is nothing more than an attempt by the major record labels to choke off a revenue stream destined for the cartel's smaller rivals.

"They're just trying to freeze any money going to independents," Jaffe said. "We made an announcement that we had convinced Sharman to share its advertising revenue with all the labels that we've signed deals with ... and I think that really freaked them out."

However, Michael Speck, the managing director of Australia's Music Industry Piracy Investigations, a division of the Australian Recording Industry Association, says the action has more to do with preserving the assets of the respondents in the Kazaa case.

"What freaked us out is finding out they'd sold their homes," Speck said. Sharman CEO Nikki Hemming recently sold her house to Sharman's accountant for a profit, only 12 months after she bought it, Speck added.

If the music industry's suit is successful, the assets may be awarded as damages to the music industry.

Following the filing of a motion with Australia's Federal Court, all parties voluntarily agreed to having their assets restricted, Speck said. The directors will be prevented from transferring their personal and business assets offshore before March 22, when Justice Murray Wilcox, the judge hearing the case, returns from vacation. Until then, all identifiable assets will remain frozen.

But Jaffe insists the latest move is simply designed to protect the music industry's monopoly of the marketing and distribution of music. "It's frustrating that four record labels would want to prevent dozens of other record companies from getting paid," Jaffe said. "That, to me, doesn't make sense. That's upsetting."

Speck says the orders specifically exempt ordinary business transactions from the freeze. "They came to court today and agreed to all of their assets being frozen. Clearly there is no concern about the ordinary business of the company," he said.

Sharman's legal woes began in February 2004, when its Sydney offices were raided by the music industry, which was granted a civil search order by Australia's Federal Court. Attempts by Sharman to invalidate the search order, known as an Anton Piller Order, were unsuccessful.

The suit alleges Sharman has directly and indirectly infringed on the recording companies' copyrights, violated Australian fair trade laws and conspired to harm the music industry.

The Federal Court will reconvene on March 22 and hear final oral submissions, which lawyers expect to run for one or two days. Justice Wilcox will then retire to make a decision. The process expected to take several weeks.

The trial primarily focused on the authorization of copyright infringement. Lawyers representing the music industry say Sharman can prevent the transfer of illegal material. It doesn’t, it says, because the primary activity of Kazaa users is to infringe copyright.

The decision in the case is likely to be appealed, regardless of the outcome, Jaffe said.